RWANDA AFFORDABLE HOUSING; ARE THEY VIABLE??

According to a recent study, Kigali City alone needs 310,000 new housing units by 2032, or around 20,700 units every year. So there is a need for integrated and tailored packages to pave the way for the success of affordable housing projects in the country, real estate developers have suggested.

However, less than 1,000 housing units are supplied every year.

Yves Sangwa, the CEO of Rwanda Green Building Organization told Doing Business that affordable housing projects could be successful in Rwanda, “once developers have access to cheap construction loans at least 8% interest rate”.

“We have hope that Rwanda Development Bank –BRD is working on it. The house buyer gets a loan at 11% but the developer gets a loan at 18% in commercial banks,” he said.

He said that considering that building materials and shipping prices have also increased due to the Covid-19 pandemic, tax incentives from Rwanda Development Board and Rwanda Revenue Authority should be reviewed.

He added that the government should elaborate affordable housing green minimum compliance guidelines to make sure the constructed units are sustainable in terms of energy and water efficiency, indoor air quality, and cost-effectiveness.

Jean Baptiste Nsengiyumva, a researcher in urban planning and Disaster and Natural Hazard Risk Manager said that studies on affordability should first be conducted so that projects are implemented after being informed by studies to meet the needs of different categories of income earners.

“Some categories seem to be excluded by the expensive house products.  The design of affordable projects should be inclusive with inputs from beneficiaries,” he said, making the case for using a small piece of land to build storied-affordable houses.

Charles Haba, another player in the real estate sector, said that the government should inject more incentives to investors.

“Public-Private Partnership is key in affordable projects. There is a need for direct support from the government. Some investors fear investing in affordable housing projects alone saying they are not profitable. It requires high cost in building affordable houses and the returns seem to be low and therefore subsidies such as providing land and basic infrastructure among others are needed,” he said.

Alexandre Nzirorera, a Rwandan engineer, who runs Nziza Training Academy and trains engineers told Doing Business that in general, affordable houses rent should not take more than 30 percent of the earner’s income.

“Affordable housing projects could also be delivered when the government injects in enough subsidies,” he said.

Need for innovation

Nzirorera said that there is a need for innovation in the housing sector which can reduce the cost of affordable housing projects.

“We need innovations that think of how five families can be housed on a piece of land where people have beliefs that it can only house three families. Innovation is also needed in construction materials that can be made from different materials,” he noted.

He said that when investors first assess the financial capacity of affordable houses’ clients, it can lead to innovation that responds to different levels of income earners’ demand.

“Government can organize talent competitions to identify innovation that can ensure affordability. Then investors will see that the business is viable,” he said.

He said that to avoid projects from stalling for a long-time, local companies should also embrace technologies that can fast-track the work.

“There are dedicated and modern systems that are used to manage and fast-track construction projects but local companies are not shifting to use them,” he said.

The engineer added that technical studies of the projects are poorly designed explaining that this triggers projects’ recurrent re-designing and stalling.

Rwanda Housing Authority speaks out

Rwanda Housing Authority (RHA) recently told this paper that the real estate developers, on several occasions, have underlined that construction projects of affordable homes are not profitable. Further, on the demand side, potential buyers cite that their incomes are very low relative to affordable houses on the market.

Estate developers, it says, are constrained by high-interest rate loans from commercial banks as there are no specific funds to finance affordable housing projects at moderate loans.

Due to the Covid pandemic, the cost of construction materials is hiking because of supply chain disruptions and rising transport costs.

The government established a legal framework for providing infrastructure subsidies to developers/investors in affordable housing.

However, the agency said that, due to the hiking of market prices caused by Covid-19 disruptions of supply chains, the investors are reluctant to heavily invest in affordable homes because of marginal profitability and high offtake risk.

“To respond to this challenge, the government is revisiting the subsidy policy to create a more attractive subsidy scheme and exploring the possibility of minimizing the uptake risk,” the agency said adding that the government decided to exempt VAT on imported and locally made construction materials for affordable housing projects exceeding US$10 million

RHA officials added the government is also reviewing the existing policies, aiming to find a balancing point between the supply and demand sides.

“There are still bottlenecks requiring the government’s in-depth involvement to support and attract the supply side. There are also some other vital elements that the government is still considering and testing to expedite affordable housing supply,” RHA said.

Among other challenges, RHA is that the cost of developable land is still high.

“The government is exploring the possibility of enforcing a land banking strategy to facilitate the developers having easy access to land and at a cheap cost,” the agency further noted.

While some projects encountered financial distress worsened by the Covid-19 pandemic, the government is facilitating them in terms of mobilizing solid partnerships with other potential developers to get back on track.

“The government is exploring the possibility of playing a direct role in the supply of affordable homes,” RHA says adding a separate social rental program (rent and rent to own scheme) is being designed to facilitate access to decent housing for low and extremely low-income earners.

What are BRD’s plans?

Emmanuel Ahabwe, the Rwanda Housing Finance Project Coordinator at Development Bank of Rwanda (BRD) Plc told this paper that at the moment there is no particular fund for affordable housing developers since the lowest interest rates are currently for buyers of houses.

However, he said, through the Economic Recovery Fund phase two, they will be able to access affordable financing for not only housing but a vast range of sectors.

The fund has a total of US$250 million of which BRD will be handling and managing US$205 million and then US$45 million by the Business Development Fund

 

SOURCE: NewTimes